Dalio caught flat-footed with large losses at Bridgewater fund

Billionaire investor Ray Dalio mentioned his Bridgewater Associates, the world’s largest hedge fund, was caught flat-footed throughout this month’s coronavirus-led market turmoil, as its marquee technique dropped 20 per cent for the yr following sharp reversals in shares, bonds, commodities and credit score. 

“We didn’t know the best way to navigate the virus and selected to not as a result of we did not suppose we had an edge in buying and selling it. So, we stayed in our positions and on reflection we should always have minimize all threat,” Mr Dalio mentioned in an announcement to the Monetary Instances. 

“We’re upset as a result of we should always have made cash fairly than misplaced cash on this transfer the best way we did in 2008.” 

Bridgewater Associates’ Pure Alpha Fund II tumbled roughly 13 per cent this month by way of Thursday, based on two individuals conversant in its efficiency, following an eight per cent drop within the first two months of the yr. The agency manages about $160 billion, with about half in its Pure Alpha macro technique. 

The efficiency losses mark a low level for Bridgewater, which rose in stature after notching optimistic returns in the course of the international monetary disaster. They’re a high-profile illustration of how the steep market falls attributable to the coronavirus pandemic are hitting fund managers.

Beneficial

Pure Alpha employs a standard hedge fund technique that actively bets on the course of varied securities, together with shares, bonds, commodities and currencies, by predicting macroeconomic tendencies. 

The technique rewarded buyers in 2008, gaining 9.four per cent in a yr when the S&P 500 index misplaced 37 per cent. It additionally outperformed the markets to a lesser diploma in 2018. 

Pure Alpha was largely betting on rising equities and falling Treasury costs coming into this month’s market shock, one individual briefed on the matter mentioned. It additionally held put choices on inventory indices, which helped cushion the losses, the individual mentioned. Bridgewater has but to launch figures by way of the top of the week. 

Final yr, the Pure Alpha technique was basically flat, whereas Bridgewater’s All Climate fund, which makes use of a “threat parity” technique that makes an attempt to steadiness threat throughout a wide range of asset lessons all through numerous market situations, gained greater than 16 per cent. 

The S&P 500 index was down 23 per cent this yr by way of Thursday however rallied greater than 9 per cent on Friday as President Donald Trump declared a nationwide emergency to assist fight the coronavirus. 

Benchmark 10-year Treasury yields recovered to nearly 1 per cent on Friday after plunging to a file low of zero.318 per cent on Monday. The Federal Reserve introduced it is going to begin shopping for Treasuries throughout all durations, which led to yields rising on the finish of the week. 

Mr Dalio earlier in January urged buyers to get off the sidelines and profit from sturdy markets, telling CNBC in an interview that “money is trash”. 

Greg Jensen, co-chief funding officer of Bridgewater, advised the FT in January that gold may surge to a file excessive above $2,000 an oz. as central banks embrace greater inflation and political uncertainties improve. “There’s a lot boiling battle,” Mr Jensen mentioned. “Individuals ought to be ready for a a lot wider vary of probably extra risky set of circumstances than we’re largely accustomed to.” 

Gold costs have been extremely risky all through the month, partly because of merchants cashing in good points to offset losses in different markets. 

Bloomberg first reported on the efficiency of Pure Alpha.

Further reporting by Gillian Tett